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Dynamic Programming Model of Health and Retirement

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  • Iskhakov, Fedor

    (Dept. of Economics, University of Oslo)

Abstract

A structural dynamic programming model is applied for modeling labour market transitions among older age workers in Norway in 1992-2003. Special attention is given to early retirement pensiion and disability pension as two major exit routes from the labour force. Health status is represented by a latent variable reflecting the eligibility for participating in disability programs. Incomplete information maximum likelihood method is used in several stages to facilitate the estimation. The model is used to investigate the degree of potential substitution of the early retirement and retirement through the disability insurance scheme. Estimates of the structural parameters of the concealed health process allow for forecasting the individual "eligibility" for the disability and thus facilitate the assessment of the potential substitution between the two exit routes from the labour force. Performed policy simulation of the complete elimination of the early retirement program indicates nearly complete return of th otherwise early pensioners back to the labour market.

Suggested Citation

  • Iskhakov, Fedor, 2008. "Dynamic Programming Model of Health and Retirement," Memorandum 03/2008, Oslo University, Department of Economics.
    • Handle: RePEc:hhs:osloec:2008_003
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    1. Iskhakov, Fedor, 2008. "Pension Reforms in Norway: Evidence from a Structural Dynamic Model," Memorandum 14/2008, Oslo University, Department of Economics.

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    More about this item

    Keywords

    Retirement; health; early retirement; disability; labour market transitions; structural dynamic model; dynamic programming;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • I10 - Health, Education, and Welfare - - Health - - - General
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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